The Future of Global Economy

11 Jan, 2019

The last 30 years have completely changed the human relationship with technology. Technology has become an integral part of our everyday life, and the tech progress doesn’t seem to be slowing down. Dr. Jonathan Woetzel, one of the world’s greatest economists, Senior Partner of McKinsey & Company and Director of McKinsey Global Institute is confident the future is digital. For ITID Lviv, Jonathan reveals the nearest future of global economy driven by four major forces – urbanization, technology, aging, and globalization.

36332839_2102401913313555_5135710747669561344_nJonathan Woetzel researches global economic trends, urbanization, and sustainable economic development, advises national governments and municipalities in 40 geographic locations around the world. On top of that, Woetzel is the founder of McKinsey China and has been working with Chinese companies since 1985 to implement the strategy of global leadership of the region. A term “the China effect”, which describes an approach of being faster, cheaper and global, belongs to Woetzel. A leading researcher of the Chinese economy, Woetzel wrote and co-authored multiple books, three of which have become international bestsellers Capitalist China. Strategies for a Revolutionized Economy, Operation China: From Strategy to Execution, One Hour China, No Ordinary Disruption. In June 2018, Jonathan became the keynote speaker of IT Jazz, a C-level networking conference annually organized by Lviv IT Cluster in the midst of the famous Leopolis Jazz Fest.

How are we doing?

If we look around we see a lot of bad stuff happening nowadays terrorism is on the rise as never before, Brexit looks bad on all fronts, USA became the only country in the world to withdraw from the Paris Agreement on climate change mitigation, etc. On the other hand, we are actually living in the middle of a really amazing time. “The world is a smarter place that it has ever been, the world is a richer place, it’s a cleaner place, it’s a safer place. It’s important to have the bigger picture if you’re sitting in the middle of something that looks very chaotic. Today is the best time for the human race,” says Jonathan beaming with optimism.
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Having looked at the graph above, it seems obvious that the world has changed for the better in the last few hundred years. This brings up the next question what is the biggest trend on the planet that has been driving this change?

For hundreds of years, maybe even thousands of years the global economy was growing at 1% GDP growth, but somehow over the last 40 or 50 years, we doubled that. Mankind got better and smarter, hence more capable of fixing problems. Eastern economy has moved from the East to Europe and now it’s going back to the East to India and China. The world’s economic centre of gravity is shifting back to Asia. “414 cities in emerging markets will fuel nearly half of the growth in global GDP through 2025 293 of which are in Asia,” states Jonathan he’s confident that emerging regions are the place you should look at if you’re in search for investors, technology, and marketplaces. In 2010, there were about 8000 companies in the world that had a billion-dollar revenue. By 2025, almost half of the world’s billion-dollar-plus companies will be headquartered in emerging markets – 40% of new companies in Asia.

Comparing the landscape in Shanghai in the 1980s and now, Woetzel says: “Growth is a very physical thing. You go from flat to tall, you go from slow to fast, you go from local to global”.

Growth is also about spendings: by 2025, 7.5 million wealthy Chinese households will account for 44% of the global luxury-goods market. This means that for luxury brands like Rolls-Royce Asia is the only market they care about.

The new digital reality

Technology is completely revolutionizing the future of work and the future of economies. The average lifetime of companies has declined by 80% over the last 50 years. “50 years ago if you were a big company, you were an old company. Today, if you are a big company, you’re a young company,” continues Woetzel. What he means is essentially 3 things: hardware, software, and data.

According to the McKinsey Global Institute, the three factors that are accelerating the pace of technological change are the following:

  • computing power: iPhone 7 is 120x faster than the first iPhone released in 2007
  • connectedness and intelligence: number of connected devices will triple to 20 billion by 2020
  • data: more data has been created in the past two years than the entire previous history of the human race

Disruptive Dozen: technologies that will transform the economy in the next 10 year

bezymyannyj-1_2Jonathan Woetzel believes that modern digital changes are good for both our economy and society. For instance, AI and Automation enable productivity growth and contribute to GDP growth at the time of aging create economic surpluses that will also be needed to help solve transition challenges, as well as help us research climate and fight diseases. The most digitally advanced sectors & companies see higher productivity and innovation. According to Woetzel “Technological advancement is driving productivity gains with less labor. If you are working in a digitized company, you’re gonna make more money”. Indeed, technology is transforming approaches to business and traditional business models. Look at Airbnb with more than 2 million rooms it’s the world’s largest hotel company, even though it doesn’t own a single physical hotel. Similarly, the world’s largest retailer Amazon doesn’t have physical stores.

The rise of digital also means that for 60% of jobs, at least 30% of their activities could be automated. Jobs that require managing others or applying expertise are less likely to be automated, while predictable physical work, data collection, and data processing might soon be done by machines. The future jobs by 2030 will be in healthcare, education, management, etc. At the same time, we’ll probably start losing jobs in customer interaction, office support.

By 2020 35% of skills workers need across industries will have changed. Between 75 million and 375 million workers globally may need to switch occupations. “AI has a lot of implications for education, and for skill change. It’s a big opportunity, but it’s also a big challenge. The change from urban to digital is as big as the change from agriculture to urban,” concludes Woetzel.

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Incredible opportunity for Ukraine

Woetzel is confident that Ukraine’s geographical location, can open up brand new opportunities for the country. “Eastern Europe and Ukraine are literary in the middle of these global trends, in between East & West, so you have this big opportunity to take advantage of both. On the one hand, there’s the Western heritage, understanding of the history, of how to develop an economy, and on another – we have the Eastern growth, the Eastern new market opportunity. We can use closer proximity to the Eastern growth markets to renew and rejuvenate the Western markets, and we can help Western technology, including Ukrainian technology to help enter Eastern markets. The Chinese call it the Belt and Road, and Ukraine is very much part of the Belt and Road initiative,” tells the economist.

When asked on Ukraine’s global brand, Jonathan Woetzel remains positive: “I’m an optimist, Ukraine has an incredible opportunity, it’s a great place. There are few places where you can find so high literacy rates and so high university enrollment rates. There’re lots of talented people here, hence a lot of opportunity for any technology intensive company to take advantage of”.

Back in 2012, Lviv has chosen IT and tourism as the key directions for the city’s development strategy. Jonathan praises the local strive for the development of the creative economy. He says that creativity is an important thing, but it has to be married to the marketplace. To make a difference in people’s lives, it has to be practical and customer-focused. Without employment opportunities, creativity is only academic.

The changes in the global economy will bring a lot of changes in our everyday lives. We’ll have to deal with a lot of transition, learn to use this technology constructively, and make sure that people are actually prepared for it. The Digital Revolution will change our workplace, relationships, and governments. The natural born optimist, Jonathan Woetzel is hopeful: “Every year Ukraine becomes more confident, but it has to become a little bit more global because you have a good base, everything is firmly stuck here. Now, bring it open to the rest of the world, and bring the rest of the world here”.

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